Bajaj near deal with Renault for $3,000 car

Rajiv Bajaj, managing director of Bajaj Auto, India’s second largest motor cycle manufacturer, was in a buoyant mood when I met him at the Fortune Global Forum in New Delhi this morning. Fortune invited him to speak at the Forum yesterday about the feasibility of producing a low cost car, but he had to pull out because, he wrote in a letter, “the CEO of one of the world’s largest automotive companies” was visiting his headquarters in Pune and a nearby factory at Chakan.

That CEO turned out to be Carlos Ghosn of Renault, who is talking to Bajaj about producing what colloquially is known as a “one lakh” car, though Ghosn has said he’s thinking of a $3,000 price tag, which is about 1.2 lakhs of Indian rupees (Rs120,000). I checked the price with Bajaj this morning and he replied: “Yesterday he (Ghosn) said $2,500 (roughly one lakh) – he’ll be giving it away free by the end of it!”

Bajaj said today that his aim is “not to produce a mainstream four wheeler” but something that “takes forward our skills and cost structure as a two and three wheeler manufacturer.” It will be a car which is “under four meters long” compared with the more usual five or six meters and will use a “unique breakthrough engine technology” that would “have its roots” in the two and three wheeler area. Bajaj plans to unveil that technology at India’s motor show in New Delhi next January.

Ghosn took some executives from Nissan, which he also controls, to Pune yesterday and the plan, said Bajaj, is a “three-way exclusive global alliance” between Bajaj, Renault and Nissan for manufacturing and marketing. Ghosn, who is also producing the mid-size Logan saloon with Mumbai-based Mahindra & Mahindra, and is planning a light commercial vehicle with Hinduja-controlled Ashok Leyland in Chennai, hopes to finalize the Bajaj deal soon.

There is now a race to see who can produce what fastest for the bottom of India’s four-wheeler motoring pyramid, enabling people to move up faster from scooters and motor bikes – the cheapest car currently on the market is a 23-year old 800cc model from Maruti Suzuki priced at Rs220,000. Ratan Tata, head of the Tata, one of India’s two largest groups, has also been trying to produce a “one lakh car” (about $2,500).

But he has admitted it will cost more and is believed to have failed to produce his dream of a revolutionary vehicle – for example with a plastic body and bars instead of doors, according to some reports. Bajaj also wants to cut customers’ maintenance, fuel, and hire purchase spending to a monthly “cost of ownership” of $150, which he says is not much more than half the cost of keeping a current small car and twice that of a motorbike.

So let’s how he and Ghosn adapt the Bajaj two wheeler engines and three-wheeler auto-rickshaw bodies into a four wheeler – that could be an interesting vehicle.